The best hotel room pricing methods

Jul 30, 2017

To seek a competitive advantage over their competitors, hoteliers need to think about fine-tuned hotel room pricing methods. Indeed, the hotel industry is one of the few that can develop effective revenue management strategies because they retain full control over the price and duration parameters.

Executing a successful pricing methodology is however not so simple and hoteliers need to avoid a few pitfalls to make the most of their revenue management strategy.

Here is a list of tips on how to implement a successful room pricing methodology to achieve long-term revenue gains:

1. Offer/display multiple prices

Any hotel would be losing revenue by setting a unique room rate for all of its customers. This is because some potential customers may be willing to pay a higher price for a given room. On the other hand, a hotel would be losing market share if some potential customers may not be willing to pay the same advertised price.

2. Monitor competitors with hotel rate intelligence tools

Shopping for competitor rates remains a golden rule in setting realistic rates for most hotels. This task is much easier when done using hotel rate intelligence and rate shopping services. The software can provide not only the raw rate shopping reports, but also the remainder of the key revenue driver data. This includes reputation management statistics, information about demand levels in a given city and information on events taking place in the local area that may impact occupancy.

Hotel Price Reporter is one such comprehensive revenue management platform.

3. Establish distinct market segments

Every customer is different, and most hoteliers differentiate between the different market segments in order to bundle products and price different rooms more precisely. For example, customers looking for a room for their holidays are generally more price sensitive than business travelers and will often book a non-refundable room months in advance in exchange for a significant discount. At the other end of the spectrum, business travelers might be willing to pay a higher price when bundling the same product with extra amenities, such as free Wi-Fi.

The Hotel Price Reporter dashboard includes a Room Mapping feature that lets users select which room types they want to compare between the different competitors so they can take into account multiple segments in the price comparison process.

4. Bundle different products with unique prices

When charging multiple prices, hoteliers need to work on how to differentiate between those prices to make sure all customers are treated fairly. In other words, customers really need to be feeling like they are buying different rooms. Therefore, hoteliers need to justify a higher price by clearly showing additional features, such as different meal plans, free Internet, gym access, etc. This way customers can identify a “rate fence” that makes them accept paying the higher price. When well executed, this technique can be rewarding because it gives the impression of an additional choice and value, while the extra amenities offered do not represent a significant additional expense to the hotel.

5. Display consistent prices to customers transparently

Today’s travellers are much better informed and understand that the per-night room rate may be influenced by various factors and varies during their stay. Hotels should forget about charging an average day rate (ADR) and instead charge different prices on different days transparently. This way customers will be reassured that they are getting the best available rate for the day.

6. Bundle hotel rooms with extra features in periods of low-demand

Discounts offered in periods of low demand may affect a hotel’s brand and confuse customers. A better way to offer discounted rates is by creating travel bundles combining rooms with additional products such as rental cars or flight seats. This method allows hoteliers willing to offer low prices to hide the real reference price from their customers, keep the hotel full all the while preserving their brand integrity.

How can Hotel Price Reporter help?

The Hotel Price Reporter platform has a local demand feature, showing a realistic demand forecast in the near and distant future for the hotel’s local market. This can then be evaluated against the pricing offered in the local market by the key hotel competitors. The platform also evaluates online review rankings and local events which could directly affect the occupancy levels. Revenue managers can use the platform to compare individual prices set for different room categories and different booking conditions.

However, no platform offers a silver bullet solution to maximizing revenue. How the platform is used is dependent entirely on revenue managers decision on case by case basis and depends entirely on the circumstances. Finding the right balance between the different factors in setting the right price is the challenge and managing all of the complexities is what makes Hotel Price Reporter an invaluable tool in a revenue manager’s arsenal.